About

Brian J. O'Connor covers personal finance and other business topics for The Detroit News, and is the author of “The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese,” his first book from Portfolio-Penguin. He’s won three humor writing awards from the National Society of Newspaper Columnists for his syndicated “Funny Money” column. In addition, he is a two-time Best in Business winner, an awarded finalist in the Scripps Howard National Journalism Awards, and winner of the Christopher J. Welles Memorial Prize from Columbia University. O'Connor joined The News in October 2004 and has been penning his column since May 2005. He is a 1978 graduate of the Roeper School in Bloomfield Hills, Mich., and holds a bachelor's degree in liberal arts from Sarah Lawrence College. O'Connor also earned a master's of science in journalism at Columbia University, where he was honored as a 2001 Knight-Bagehot Fellow in Economics and Business. Before joining The News, O’Connor was the founding managing editor of Bankrate.com, the Web’s leading personal finance site. He also was managing editor of a local business journal and a business and arts editor at South Florida daily newspapers. A native of Detroit, he is married with one son and lives in Sylvan Lake, Mich.

AlamySo far in The $1,000 Challenge, I've shown you how I cut more than $800 a month from my family's budget in nine spending categories.(To catch up, check out the previous articles in the series here.) The last step in reaching my goal of cutting our spending by a full $1,000 a month was to trim $168 out of what we spent on housing.

Refinancing Seems to Be the Best Bet

Refinancing my 5.5 percent mortgage to 4.875 percent -- and rolling in the balance of a small variable rate home equity line -- would cut $113 out of my monthly housing budget. The rules for smart refinancing are simple: It should not lengthen the term of the loan; it should pay for itself in 24 months or less; and, other than loans fees, it should not raise the your balance. And it won't happen in a hurry.

Thanks to the mortgage mania that helped put us into their recent recession, all kinds of rules have been added to the formerly simple process of home refinancing, especially the appraisal. Everything depends on whether the property appraises at a high enough value. That's why, several weeks before staring the process myself, I did two things:

I gathered recommendations for established local mortgage brokers and found one who didn't charge an application fee until after an appraisal had been conducted. That way, I wouldn't waste $400 or $500 in nonrefundable loan fees on top of a $300 appraisal bill if my home didn't qualify for a new loan.

I got my broker to tell her manager to tell the independent third-party appraisal management firm to tell the independent real estate appraiser that I needed the appraisal in time to wrap up my cost-cutting project. So, of course, the appraisal was set for two weeks after my deadline.

My message to the appraiser had to travel across all those byzantine firewalls for good reason: They were add to the appraisal process in an effort to keep mortgage brokers from influencing appraisers. They most likely work, which can eliminate a lot of the shenanigans and outright fraud that helped inflate the housing bubble. But they also add extra steps to the complicated process of any real estate transaction. So I needed to look elsewhere for my last week of savings.

Other savings on the house were out, too. Taxes have dropped with the value of the house, and my insurance agent is so good at finding me deals that he'd automatically applied the discount for my being 50 years old right before my birthday.

Thinking Outside -- Far Outside -- the Cost of Housing

But if I couldn't save on the house, I could at least save on the housekeeping. Cutting the maid service (my own mother calls me "domestically challenged") from twice a month to once saved $60. If I train the dust bunnies to march in formation, maybe we can start charging admission.

And that was it. I had two choices: Declare defeat, or extend my cost-cutting to other parts of our budget.

The next-biggest spending category was the Funny Money family fleet, which consists of a 30-year-old deck boat and its slightly older twin. That original vessel died a year before and, on the advice of our mechanic, Big Tom, we kept it for parts.

That meant paying to store it -- which had to go. The storage is paid until spring, but after that, I'd pull off the parts we want, scrap the rest and sell the trailer.

I also need to budget more consistently for repairs. In the year before, boat-based expenditures averaged a surprising $244.38 a month, including the dock fee but also several repairs.
Instead of coming up with money when the boat breaks down, it would work better to budget for repairs and annual fees, then set that money aside each month in a separate savings account.

A New Approach to the S.S. MoneyPit

With a boat built in 1979, unused repair money won't go unused for long. Any excess can build up to provide a cash cushion when several fixes are needed. That way we can keep the aging S.S. MoneyPit on the water without floating a credit card charge or sinking the family budget.

I recommend that approach for any kind of annual expense: Create your own reserve fund to cover maintenance or repairs of anything from boats or snowmobiles to homes and cars. Averaging three years of boat repairs plus annual fees, I found that I could trim the monthly boat cost to $145, a savings of $99.38. That gets me tantalizingly close to my $1,000 goal. So where else could I save?

Back to the home front, it turned out that the monthly maintenance and repair budget became inflated because, like the boat, there were a few big one-time expenses the previous year. Instead of the $100 per month we average in most years, the prior year worked to more than $250 a month.

That boosted the repair and maintenance average over the past few years to $135 a month. Trimming that to $125 and accruing the difference in the annual expense/repairs account means we can cut $10 but still build a reserve fund to cover big things.

Success, But Not by Much

That brought my last week's savings to $169.38 -- and push my total to a whopping $1.39 over my $1,000 goal. While tinkering with the maintenance budgets won't reduce my overall spending, it still lowers my monthly spending by evening out what comes out of our take-home pay. Instead of having to skip another bill or pile more debt onto a credit card, I'll be able to pay repair bills with cash from the reserve account and keep all our other financial goals on track.

Not everything I've outlined in this 10-week series will work for every family. But I hope I've given some idea of a good approach to getting your finances under control in a way that's fast and easy. Got after your biggest categories to find the most spending, and concentrate on monthly bills so that you'll be saving money each and every month. Go over every bill, methodically, one at a time, category by category. Cut out what you don't use, don't really need, and then look for less expensive alternatives to what's less.

It takes some effort and, if you're really pinched, some creativity and, yes, some sacrifice. But the feeling of finally getting some control over your cash should more than make up for it. All you have to do is start now, start small and don't try to be perfect.

Read them in any order you want -- just get in there and start saving! Check out the series introduction to get the big picture on finding big savings in your family budget. You can check here on DailyFinance.com, follow me on Twitter, or go like The $1,000 Challenge Facebook page to get a heads up whenever a new installment comes online.

Or better still -- don't buy the book. WIN it free. DailyFinance is giving away 10 copies, and all you need to do to toss your name in the virtual hat is follow @daily_finance on Twitter and re-tweet one of our $1,000 Challenge Giveaway Tweets. To find our tweets easily, search for #dailyfinancegiveaways.

I always assumed I needed a cabin in the mountains, an ax or other weaponry draped over my shoulder, and a full beard in order to snowshoe. But as it happens, snowshoeing can be done by pretty much anyone, fairly cheaply. Find a local outdoor equipment rental supplier and snag yourself a pair of snowshoes for under $10.

Sledding has two perks that make it a perfect winter activity: 1. It's free (assuming you have a sled or a friend's you can borrow). 2. You're outside, but you're not cold, because all it takes is a couple of times climbing back up your favorite sledding hill, and you're breaking a sweat. And did you know that sledding is the cutest photo op for a family ever? Oops, that's three things.

There's no better way to enjoy winter than from the inside of your toasty warm car. And no December is complete without a self-guided tour of the best local Christmas lights. This list compiles some favorite spots across the country, but you can also Google the best displays in your area. And (added bonus), your children are strapped in for this activity, which should keep things simple and (relatively) drama-free.

Thanks to Pinterest, the DIY bug is more contagious than ever -- especially during the winter. If you're looking for a free way to unleash your inner Martha (or Marty, for you guys out there) Stewart, try out a free DIY workshop from home-improvement stores like The Home Depot or craft stores like Michaels. Other retailers are also getting in on the action, such as Apple, which hosted hour-long coding classes for children at their stores this week.

Get the thrill of the outdoors without the winter weather in the pleasant confines of an indoor rock gym. For the price of a movie and popcorn, you can get a day pass, learn how to belay friends and family safely, and scale to your heart's (and ripped forearms') content.

When winter gives you frozen lemons, make piping-hot lemonade -- and then swim in it. (That's the expression, right?) According to the National Geophysical Data Center, there are over 1,661 natural hot springs in the United States. However, most are out West. If you happen to live east of the Rockies, it's high time to make friends with a hot-tub owner.

Leave the fancy clubs and goofy-looking pants at home; this is poor man's golf. But don't let that fool you. It's a great game for beginners and Tiger Woods frisbee-ers alike. With public courses across the country and greens fees that are typically 100 percent cheaper than regular golf, you might completely forget about those clubs in your trunk come spring.

Going to a movie for a dollar might sound like something your grandparents did in simpler times, but believe it or not, you can still catch recent releases in theaters for just a buck or two. They're getting harder to find, but do yourself (and your budget) a favor by finding a local dollar theater this winter for some quality entertainment.

So leave the hibernating to the grizzlies and your weird roommate and get yourself out and about this winter. If your budget can get along and have a good time with these cold-weather activities, so can you.

Understanding Credit Scores

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pfjw

Lemme see if I get this - as it applies to house repair anyway: The author arbitrarily reduces the budget for house repair by stating that the previous year was 'over-inflated' due to one-time expenses. So his crystal ball states that there will be no such expenses next year. And this is a strategy to save?

We live in a house built in 1890. Our goal with it is to do all of the major systems and make all of the necessary repairs/replacements prior to our retirement with a couple of years left over for purely aesthetic improvements - such that when we retire it will be as close to maintenance-free as a 120+ year old very well built house can be. But we know of a certainty that there are always surprises such that we do not expect to predict all that we need to do to as fine a degree of $50/month or so. We do have a household savings account that is enough to do the entire roof and/or any similar major expense. That remains the minimum amount in that account. Everything else we do based on current cash-flow (we have no debt other than the mortgage) or we 'borrow' from that account based on a fixed repayment schedule.

The vintage VW camper (the functional equivalent of an old boat) is strictly current-cash-flow only and the day we stop using it regularly will be the day it is sold.

Cutting expenses must be realistic, not based on speculation and arbitrary decisions. Most of what has been put on this series I agree with in principle. This last is a major stretch to accept.